The table shows the marginal benefit schedule from a college education. Students

Question

The table shows the marginal benefit schedule from a college education. Students millions per year Marginal benefit dollars per student per year) The marginal cost of educating a college student is $5000 a year. The marginal external benefit from a college education is a constant $2,000 per student per year There are no public colleges. If the govemment offers vouchers to students, what is the value of the voucher that will encourage the efficient 5,000 3,000 2,000 1,500 1,200 1.000 800 number of students to enroll? The value of the voucher is $per student andmillon students enroll.

Explanation / Answer

Answer
The voucher is equal to marginal external benefit=$2000
The optimum or efficient quantity of students is at
the social benfit=marginal cost
Where
the value of marginal benefit increases 2000 to be the marginal social benefit
it means the quantity is 2 million students
where
Marginal cost=marginal benefit+external benefit=3000+2000=5000

The value of voucher is $2000 per student and 2 million students enroll

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